Credit cards are necessary when cash is not immediately available for a purchase. The way to avoid slipping into the abyss of credit card debt is to use this credit wisely. Another smart move is to find the cheapest credit card available because this will save a lot of money over the long-term.
Finding the least expensive credit card requires an understanding of the different conditions and terms.
When comparing credit card offers, consumers should focus on the annual fee, the fee for late payments and other situations, the annual percentage rate, and the payment grace period. Most Discover and Visa cards have no fee, while some American Express cards have a $50 or higher annual fee.
Narrow the list to only cards with no annual fee.
Late payment fees and other fees vary by card issuer. Late fees are typically between $20 and $30 per month. Consumers should learn what the late payment penalty is and when it starts being applied. Other fees include those for balance transfers and cash advances.
Cash advance fees are usually about three to five percent of the advance amount. Balance transfer fees vary from zero to about three percent of the transferred balance.
Current annual percentage rates range from ten to 20 percent, depending on credit status. With a good credit score, customers receive the lowest rate available. Interest rate only comes into play when the credit card balance is not paid in full each month.
When a balance rolls over for several months, the interest rate is an important consideration.
The length of time available to pay for purchases without accumulating interest charges is the grace period. Typically, this is between 25 and 30 days but some card issuers begin imposing interest when the purchase is made.
A card with a 25-day or more grace period is recommended because this provides ample time for payment.
Credit Cards Are Both Positive And Negative Financial Tools
It seems like nearly all U.S. citizens, from teenagers to those in retirement, have at least one credit card. Credit cards are convenient, safer than carrying a lot of cash, and offer certain protection under federal law. On the other hand, they are a large responsibility and people who do not use them wisely can wind up in debt that affects their credit score.
The positive aspects of credit cards include helping consumers build a strong credit history and assisting with money management. Cardholders can purchase expensive items and pay for them with affordable installment payments.
Travel is streamlined when a credit card is used because most rental car agencies and hotels require one for reservations.
Credit cards protect consumers against theft of cash due to the need to carry less of it. The negative aspect of this is that they make it easy to purchase expensive items or buy on impulse. As the credit card bill increases, the cardholder may be unable to pay it in full.
By paying only the minimum balance each month, the individual will never repay the entire balance and accrued interest will eventually exceed purchase price.
Cash advances are offered with many credit card accounts. Consumers use their credit card to get cash from an ATM or bank. Unlike an ATM card, this cash is not free. Interest rates for credit card cash advances are often higher than for purchases, making timely repayment of the balance even more important.
The main reason people purchase unneeded items or overspend is because of credit cards. Placing additional charges on a card with an outstanding balance can cause debt to snowball. If this debt cannot be repaid, the credit report could suffer.
Responsibly managing credit card spending and repayment can prevent such negative consequences and enable the card to be a valuable financial tool.
